MetLife has rolled out its first qualified longevity annuity contract product for 401(k) plans
The announcement comes a year after the Treasury Department issued guidance paving the way for QLACs in 401(k) plans and IRAs. Under the new rules, participants in 401(k) plans can move 25 percent of account assets, or a maximum of $125,000, into a longevity contract the distributes savings typically around age 85.
Designed as a hedge against longevity risk in retirement, 401(k) assets invested in QLACs are not subject to required minimum distributions governing defined contribution savings at age 70 ½.
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Up until now, major issuers of longevity annuities in the retail market have been ambivalent about designing QLACs specifically for 401(k) investors, despite some speculation after Treasury's announcement that longevity annuities would rapidly penetrate the 401(k) market.
Insurers have, however, shown a willingness to test the IRA market. American General Life Insurance Co. and The Principal Financial Group quickly developed an offering for IRA investors. Others followed suit, but as far as the 401(k) market is concerned, MetLife has been one of the few insurers publicly committed to developing an option for the 401(k) market.
The deferred income annuity market has surged as baby boomers face the challenge of making assets last in the face of higher life expectancies.
Data from LIMRA and the Insured Retirement Institute showed DIA sales at $211 million in 2011. By 2013, that figure had catapulted to $2.2 billion.
MetLife's new QLAC, branded as Retirement Income Insurance, was designed specifically for the institutional, defined contribution market, according to a release from the company. The company claims it was the first to introduce longevity annuities to the retail market in 2004.
Roberta Rafaloff, a vice president in MetLife's institutional retirement group, called the prospect of outliving assets the greatest risk retirees' will face, and suggested Treasury's guidance last year will go a long way to mitigate that risk.
"By lowering the required annual distribution participants are required to take in early retirement, more money can remain in the participant's DC plan with the potential to grow," Rafaloff said in a statement.
MetLife's Retirement Income Insurance QLAC will come in two forms: Lifelong Income for One, which guarantees fixed payments for as long as a participant lives; and Lifelong Income for Two, which assures payments to spouses of participants.
Also, participants can choose an optional inflation hedge, which increases payments annually by up to 3 percent a year.
How sponsors react to MetLife's rollout remains to be seen, or whether or not the move will force the hand of other carriers.
Soon after the Department of Labor green-lighted Treasury's new guidance last September, Mark Weisberg and Linda Lemel Hoseman, partners at the law firm Thompson Coburn, called the regulators' efforts to address longevity risk "laudable."
But the guidance contained "numerous requirements and possible traps" that might slow sponsors' adoption, and participants' understanding of QLACs, wrote the attorneys in a blog post.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
